DURECT Corp (DRRX) 2004 Q1 法說會逐字稿

Hello and welcome to the first quarter 2004 earnings call for DURECT Corporation.

We're ready to get started.

Hello everyone and good afternoon.

This is Schond Greenway, head of (indiscernible) DURECT Corporation.

And on behalf of everyone at the Company we would like to welcome you to our first quarter 2004 financial results conference call.

I have with me today, Jim Brown, our CEO, Tom Schreck, our CFO, and Geann Lee (ph), our Controller.

The order of the call will be as follows.

Tom Schreck will review DURECT's first quarter 2004 financial results.

Next the call will be turned over to Jim Brown to discuss the highlights for the quarter.

Afterwards we will open up the call for a question-and-answer session.

Before I turn over the call to Tom, I would like to mind you of our Safe Harbor statement.

During the course of this call we may make forward-looking statements regarding DURECT's products in development, expected product benefits, our development plans, future clinical trials or potential private market and projected financial results.

These forward-looking statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements.

Further information regarding these and other risks are included in our annual report on Form 10-K under the heading, Factors that may Affect Future Results.

I will now turn the call to Tom Schreck, CFO of DURECT.

Good afternoon everyone and thanks for joining our first quarter 2004 earnings conference call.

I'm going to briefly review the financials before asking Jim Brown, our President and CEO, to review the highlights of the quarter in greater detail.

Our net loss for the three months ended March 31, 2004 was $6 million or 12 cents per share compared to a net loss of $5.9 million or 12 cents per share for the same period in 2003.

Our results for the three months ended March 31, 2004 included non-cash charges for the amortization of intangible assets and stock-based compensation of 370,000 compared to 181,000 for the same period in 2003.

Cash used in operating activities was $4.7 million for the three months ended March 31, 2004 compared to $5.2 million for the same period in 2003.

Total revenues were $3.4 million for the three months ended March 31st, 2004 compared to 2.6 million for the same period in 2003.

Total collaborative research and development and other revenues were 2 million for the two months ended March 31, 2004, compared with 1.1 million for the same period in 2003.

The increase in total revenues was primarily attributable to higher collaborative research and development revenue recognized from our agreements with Pain Therapeutics and Voyager Pharmaceutical Corporation and higher service revenue from a wholly-owned subsidiary, Absorbable Polymers International Corporation, API, offset by lower product revenues from our ALZET and API product lines.

Research and development expenses were $5.4 million for the three months ended March 31st, 2004 compared to $5.6 million for the same period in 2003.

The decrease in the three months ended March 31, 2004 was primarily attributable to the lower personnel expenses and consulting expenses compared with the same period in 2003.

Selling, general and administrative expenses were 2.2 million for the three months ended March 31, 2004 compared with 2.2 million for the same period of 2003.

There was no material difference in selling, general and administrative expenses between the quarter ended March 31st, 2004 and the quarter ended March 31st, 2003.

The interest income was 304,000 for the three months ended March 31, 2004 compared with 241,000 for the same period of 2003.

The increase in interest income was primarily the result of higher cash and investment balances held during the three months ended March 31, 2004 partially offset by a decline in interest rates.

Interest expense was $1.1 million for the three months ended March 31, 2004 as compared to 124,000 for the same period of 2003.

The increase during the three months ended March 31, 2004 was primarily the result of the interest accrued on the (indiscernible) million convertible debentures the Company issued in June and July of last year.

At March 31, 2004 DURECT had cash and investments of $80.3 million, including 3 million in restricted investments, compared with cash and investments of $85.2 million at December 31, 2003.

We expect our net loss for the second quarter of 2004 will range from 7 to $8 million, or 14 to 16 cents per share.

I will now turn the call over to Jim Brown, our President and CEO, to discuss the highlights of our business for the first quarter of 2004.

Good afternoon everyone and welcome.

The first quarter of 2004 was a solid quarter for DURECT Corporation.

We made significant progress moving our three lead programs forward.

These programs are our implantable CHRONOGESIC product, which we have partnered with Endo Pharmaceuticals for the United States and Canada, our injectable postoperative pain control product for which we have yet to establish a commercial partner, and our REMOXY controlled release oral oxycodone product utilizing our SABER Gelcap technology, which we have marketed with Pain Therapeutics Corporation.

CHRONOGESIC is a subcutaneous osmotically driven delivery system which delivers sufentanil, a very potent narcotic at a constant rate for three months for the treatment of opioid responses to chronic pain.

In mid-December of 2003 we initiated animal studies with new prototype CHRONOGESIC systems to address premature shutdown.

In March of 2004 we completed the feasibility study testing a number of alternatives in animals.

We measured the performance of these systems at 30, 60 and 90 days.

We're pleased to announce today that we have identified a number of possible solutions.

In these alternatives we did not see any shutdown.

In fact the data from these studies give us a confidence that this program remains on track.

We are currently ordering parts and preparing to start the GLP animal safety study.

And we reaffirm our belief that we will resume clinical trials for this program by year end.

You recall the market opportunity for chronic pain is over $3.6 billion annually and growing at over 20 percent.

We continue to work with Endo Pharmaceuticals for the development of CHRONOGESIC in the United States and Canada, and have a significant level of interest from potential international partners for this product.

I now what to talk about our postoperative pain depot product.

In this case we're using bupivacaine, a relative of Novocain to minister a depot during surgery to provide local pain control for two to three days.

This product is delivered via our patented SABER controlled release depot technology.

We previously reported the results of a Phase I study performed in the UK.

These results are steady-state drug delivery for three to four days from this product, as well as good tolerance of the SABER injectable (indiscernible).

We are currently formulating our product for higher drug loading in preparation for our next round of clinical studies.

We anticipate initiating Phase I/IIA studies later this year.

We are also formulating different compositions of this product for different clinical studies.

Most recently we held a clinical advisory meeting for this product, bringing together a selected group of surgeons and anesthesiologist that are experts and thought leaders in the field.

We're very pleased about the level of interest of this product from not only our clinical advisers, but also potential partners and physicians currently treating post surgical pain.

Based on the input from our clinical advisers we're developing our Phase I/IIA a clinical trial protocol, and anticipate that we will initiate this trial this year.

We also conducted market research with surgeons and anesthesiologists, and they spoke to a number potential benefits of this product.

These benefits included reduced hospital stays, a reduction in the amount of post surgical pain meds in regard for these patients, as well as reduced side effects resulting from the use of concomitant opioid medication.

With more than 25 million surgical procedures in the United States, which annually could potentially have benefits in this product.

I now what to talk about our SABER Gelcap, which is used as a basis of an oral controlled release opportunity for us.

Due to this technology we are able to transform patient friendly and easy to swallow short-acting gel caps into long-acting controlled release products.

Our SABER oral dosage form also may have the added benefit of being less prone to abuse than other controlled release dosage forms which are on the market today.

And we're in discussions with a number of companies who are interested in this technology.

REMOXY is the first product that we're developing using our SABER gel cap technology.

REMOXY is an oral long-acting oxycodone capsule.

It incorporates several of these deterrent properties and offers the convenience of twice a day dosing.

We continue to make progress with our REMOXY program.

In January 2004 Phase I clinical testing of the REMOXY product was initiated by our partner, Pain Therapeutics.

We anticipate announcing the results of our REMOXY Phase I studies by Pain Therapeutics during the second quarter of 2004.

They have also stated their plans to initiate Phase III studies by the end of the year for this program.

REMOXY may offer abuse potential benefits when compared to current long-acting dosage forms which are on the market.

And this comes in two forms.

First is just the simple viscosity of SABER itself.

If one which are cut open a gel cap which contains our formulation, you have a formulation with greater viscosity than that of vaseline which makes it impossible to snort.

And the other side of it is it is also very difficult to extract, no matter whether you use alcohols or acids, the active ingredients in this form.

Oxycodone, the active ingredient in REMOXY, is currently used in oral long-acting pain control product, including oxycodone -- Excuse me, Oxycontin, a brand-name opioid painkiller with annual sales that exceed $1.9 million.

In summary with regard to CHRONOGESIC we feel confident about the product and we anticipate that we will be back in humans by the end of the year as previously stated.

With regard to our postoperative pain product we saw strong PK data with the drug being release for three to four days.

And we anticipate transforming this performance into Phase I/IIA studies by year end.

With regard to a REMOXY, lookout for an announcement of Phase I study results in the second quarter of 2004.

Separately we continue to advance our R&D pipeline.

Now I would like to thank you for participating in the call, and take any questions that you might have.

Kate Winkler from Merriman Curhan Ford.

Great announcements.

I'm wondering if you could just give us a little more insight on the plan with CHRONOGESIC in terms of you said ordering the parts and getting ready to get into GLP studies, or GMP studies I guess?

And I guess I was wondering if you could give us a little more insight on what that means and what the timeline means in terms of starting to dose actual human patients?

Yes, that's a great question.

Thanks, Kate.

Yes, the timelines and the efforts that required are probably fairly similar to what we saw last year.

From this point, whether it is a matter of simply ordering the parts, and as we said before, there's a certain aspect of time required for these parts to be shipped from the various third parties where the parts are produced.

They come in-house and are inspected and brought together.

During that time frame we are doing -- preparing for and we will be conducting GLP tox studies and making any final adjustments to the protocol and working with the agency.

Then go forward into into what will initially be a PK trial.

And then on completion of that, back into the majority of the remainder of the clinical program.

So can you give us any insight on how you expect the ramp rate and the protocol in terms of timeline for ultimately you said, I believe there is some 900 patients left to go?

Yes, Kate.

There about 900 patients left to go.

Now we haven't projected the duration of the Phase II program in its entirety.

We would do that only with our partner, Endo Pharmaceuticals, as we got to that point in time.

We can only say now just -- I can reiterate some of the history if that is any help.

And that is I would use an example that we had from our Phase II trial.

Remember with regard to that trial, what we did is we actually had chronic pain patients come in.

And we wanted to understand the difference between the active ingredient in the fentanyl patch, the duragesic patch fentanyl (indiscernible) our products because we wanted to track 200 dosage forms and the like.

And so what we actually did is as these patients go into the hospital.

They were in the hospital for three days; had a blinded infusion intravenously.

So for three days they sat in the hospital and were intravenously infused.

And then after the completion of that they received a CHRONOGESIC implant and then went home.

But we had expected that to take 60 patients through this would take a number of months, just because of asking them to be away from home and that benefit for this amount of time was actually also initiated over the holidays.

Rather than take the six months that we had allowed actually we were able to complete full enrollments in about six weeks with some very positive physicians and patients out of this.

So past (indiscernible) performance or productions going forward, I can't say that.

I can only say you know in that trial it was very favorable.

Okay, great.

And one other question before I step off and let someone else take a chance, and that is on the SABER platform in terms of specifically the SABER pain anesthetic.

You said that you are exploring the opportunity to exploit this in different clinical settings.

And I was wondering if you give us any insight are these different sorts of operations or surgeries, or is this even beyond surgery?

You know there are a number of different things.

And some that I can talk about and some just for from a competitive standpoint I would as soon not, just make sure that we've got a little bit of leg up.

So I can tell you in general this SABER affords itself to be applied in many different forms.

We can have a spray arm.

We can have paste.

We can have an injectable.

And so we're looking at all three of those in different surgical venues would lend themselves better to do different forms.

And so we're now looking at the market research, the opportunities that the surgeries and trying to apply all those things together.

With regard to specific indications I won't get into those now because there are some specifics.

Tom, (inaudible)

Oh, yes, just to reiterate, the benefit to the patients could be phenomenal.

And the difference there is having recently had a family member, actually one of my children, just recently had surgery and to be able to have afforded her three or four days of pain control versus Vicodin or other things would have been -- as a parent would have been a wonderful thing to be able to do.

I think from a patient's standpoint, from a doctor's standpoint there are some great advantages that people see.

The other side of this from some of the market research we've done with third party (indiscernible) they see some real advantages to the product with regard to just simply reducing health care costs.

Not have to having the nurse practitioners who are on the ward on the swing graveyard shift have to deal with pain control.

The provider can go about some of the other duties that are in front of them rather than insuring people have their pain meds every four hours.

So there are some real advantages.

Patrick Flanagan from Adams, Harkness & Hill.

Congratulations on the feasibility study.

I was just wondering how many systems were you able to identify that did not malfunction in the feasibility study?

And then what was the threshold to determine whether or not a particular system was successful?

Because I assume that each system had multiple tweaks on each.

I was just wondering, I guess, what was the determining factor as to whether or not you were successful?

And then finely did you find anything additional with these systems that may have went haywire or that occurred beyond your expectations?

First let me answer the last one first.

Did we find anything new, any other new issues?

And the answer to that would be no.

No, I think that is very important.

With regard to -- we tested a number of different systems and in the systems all the new forms that we have taken the system in we didn't have any shutdown, which is a very important piece.

As far as -- you are kind of asking some questions -- how are we knowing whether or not we have -- we should feel comfortable.

The question maybe can be restated stated perhaps.

We thought we had fixed this problem before.

You guys told us you solved it once before.

Why should we look at it now and say that you have solved the problem?

I think the difference is really what we have learned over the last year and any indicators that we have of performance.

And the example that I would use -- and the reason I can't get into specifics on this is because there are patents that are being filed and will be filed going forward.

And I don't think that would it be in the best interest of our shareholders to share some of that proprietary information in this manner.

But we will, as those patents are secure, we will then start to illuminate a lot more of this information.

But the best way then to consider these indicators is there are ways of being able to now -- to predict system performance.

And I think the example that might be easiest to kind of use would be, one, if you think about the dashboard in our car.

And you look down and you see the gas gauge.

You know immediately by looking at the gas gauge whether you have got enough gas -- if you know your car well -- to go the next hundred miles to get to the next town.

And we had that kind of indicator, kind of performance on these systems.

And we can look at the systems, understand them at 30, 60, 90 days and beyond what is the performance?

What is the mechanism of shutdown?

And can we determine that and determine whether or not we're comfortable with where we are?

And we're very pleased with where we are.

Great.

In terms of the toxicology study are you going to be taking more than one system into that type of a study in testing them in parallel.

That is an interesting question.

I think we may, if for no other reason other than you know we're always looking at slightly different designs for different indications.

I have talked before about the possibility of longer duration systems for arthritis and things like that.

And so we may well do that.

And they may not be directly applicable to the existing three-month CHRONOGESIC product, but they certainly -- I would like to get some of that stuff laid down the tracks to move forward another programs.

I was just wondering in terms creating a safety net, assuming that one of the new systems were to not work in the toxicology study (multiple speakers) have another one that would?

Absolutely, Patrick.

We're not looking to cut off our nose to spite our face in this.

Absolutely.

So whatever we can do to give ourselves the greater strength, we will.

And then finally when exactly do you expect to begin the toxicology study?

Well, we have not gone into specifics.

We've just said that we have initiated the work towards that.

And right now I just think we should just look for us to be dosing in a PK trial subjects at the end of the year.

That is how I would look at it right at this point in time.

Kate Winkler.

Actually my question was just asked.

It was about the different platforms going forward in CHRONOGESIC's, so I will step back in the queue.

That actually concludes the question-and-answer session.

I have no other questions on the line at this time.

Well, thanks.

With that I would like to thank you all for participating in this call.

Thanks everyone, very much.

Thank you very much and this concludes the first quarter 2004 earnings call for DURECT Corp.